Analysts wary about purchase of GM assets

Video

Play VideoGM: China operation won´t be affected Play VideoBizChina Special - Bankrupt GM: What is ahead?

Chinese enterprises eager to scoop up some of the assets being sold by major US auto makers are being warned to move cautiously. Analysts say what might appear to be a good deal may not produce positive results if Chinese companies aren't ready for international acquisitions.

One day after filing for bankruptcy protection, General Motors announced it had a tentative deal to sell its Hummer brand to China's Sichuan Tengzhong Heavy Industrial Machinery. Tengzhong is a privately owned road, construction and energy industry equipment maker.

But some market watchers are not optimistic about the prospects of the acquisition.

Zhang Jingdong, Strategist of Dongxing Securities, said, "I think Chinese enterprises are not yet fully prepared for such cross-border acquisitions. Though they are relatively cash-rich and can buy assembly lines or even brands. But I think there are still some obstacles. For instance, can Chinese buyers really produce the same vehicles after acquiring the assets? I think Chinese enterprises still have a lot of work to do. A successful acquisition requires much more than just money or low price."

Such concerns are not groundless.

The result of two previous acquisitions by Chinese auto makers so far - Nanjing Automobile corp's acquisition of the British brand Rover, and SAIC's acquisition of South Korea's Ssangyong - have all fallen short of their original goals.

Zhang Jingdong said, "It might be an opportunity for Chinese enterprises in terms of the current external market environment. But if they are not fully prepared for international acquisitions, such opportunities may also turn into pitfalls."

Analysts say it's important for Chinese auto makers to have a sober understanding of their strengths and weaknesses. China may well become the world's biggest market and manufacturing base of vehicles in the next decade. But there's still a long way to go before the country becomes a global auto power.